This paper introduces a method for solving numerical dynamic stochastic optimization problems that avoids rootfinding operations. The idea is applicable to many microeconomic and macroeconomic problems, including life cycle, buffer-stock, and stochastic growth problems. Software is provided.

This paper introduces a method for solving numerical dynamic stochastic optimization problems that avoids rootfinding operations. The idea is applicable to many microeconomic and macroeconomic problems, including life cycle, buffer-stock, and stochastic growth problems. Software is provided.

We present a theory of homogeneous volatility bridge estimators for log-price stochastic processes. The main tool of our theory is the parsimonious encoding of the information contained in the open, high and low prices of incomplete bridge, corresponding to given log-price stochastic process,...

We revisit the question whether commodities should be included in investors' portfolios. We employ for the first time a stochastic dominance efficiency (SDE) approach to construct optimal portfolios with and without commodities and we evaluate their comparative performance. SDE circumvents the...

Using the Gartner-Ellis theorem from large deviation theory, we characterize the leading-order behaviour of call option prices under the Heston model, in a new regime where the maturity is large and the log-moneyness is also proportional to the maturity. Using this result, we then derive the...

We show that if the discounted Stock price process is a continuous martingale, then there is a simple relationship linking the variance of the terminal Stock price and the variance of its arithmetic average. We use this to establish a model-independent upper bound for the price of a continuously...

In this paper we prove an approximate formula expressed in terms of elementary functions for the implied volatility in the Heston model. The formula consists of the constant and first order terms in the large maturity expansion of the implied volatility function. The proof is based on...

We look at the problem of pricing CoCo bonds where the underlying risky asset dynamics are given by a smile conform model, more precisely an exponential Lévy process incorporating jumps and heavy tails. A core mathematical quantity that is needed in closed form in order to produce an exact...

This study presents a set of closed-form exact solutions for pricing discretely sampled variance swaps and volatility swaps, based on the Heston stochastic volatility model with regime switching. In comparison with all the previous studies in the literature, this research, which obtains...

I study how boundedly rational agents can learn the solution to an infinite horizon optimal consumption problem under uncertainty and liquidity constraints. I present conditions for the existence of an optimal linear consumption rule and characterize it. Additionally, I use an empirically...